A pandemic, historically low mortgage rates, and record low housing inventory are helping to drive many homebuyers to skip crucial steps to get in on the hot housing market, according to one financial expert.
“You're seeing people are feeling this urge to hurry up and get something done for the sake of missing out,” Chris Hogan, a personal finance expert and spokesman for Ramsey Solutions, told Yahoo Finance Live (video above). However, he added, "there's a process we need to follow to make sure buying a home ends up being a blessing more than a curse.”
Homebuyers can end up getting in over their heads financially if they get caught up in a bidding war. Others may bypass a home inspection only to discover black mold in their basement after they close.
This all can be avoided, Hogan said.
“I really want to caution people on this because I'm also reading stories of people that are living their nightmares,” Hogan said. “Let's be honest, the goal is not to buy the home. The goal is to own that bad boy.”
Hogan offered a three-step process to make sure you’re in the right financial position to purchase a home.
Get out of debt: Pay off credit cards, student loans, and car loans.
Build up your emergency savings: Save up at least three to six months worth of living expenses. “That way you have a cushion between you and life happening,” Hogan said.
Have a game plan for your home purchase: For Hogan, that means knowing how much you can spend on your home purchase within his three guidelines:
Get a 15-year fixed rate mortgage
Make sure your monthly payment is no more than 25% of your take-home pay
Put down 10% at the very minimum, but strive for a 20% down payment to have more equity and to avoid paying private mortgage insurance.
“So having these guidelines in place will ensure that you buy a home the right way,” he said, “instead of just jumping the gun because your parents say so or your neighbors did so.”